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South African Market Review South African markets closed lower yesterday, ahead of today’s interest rate decision by the SARB. Platinum sector stocks dragged down the market, with Royal Bafokeng Platinum, Anglo American Platinum and Impala Platinum declining 5.5%, 4.9% and 3.1%, respectively. Nampak Limited lost 3.3%, after it indicated that it would write-down the value of its flexibles division before selling it and cancelled the sale of another unit. PSG Konsult fell 0.7%, despite indicating that it expects FY15 headline EPS to be higher between 33.0% and 36.0% from the last year. However, Howden Africa Holdings advanced 2.4%, despite indicating that its revenue dropped 5.6% in FY14 from previous year. The JSE All Share Index fell 1.0% to close at 52,313.02. |
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UK Market Review UK markets finished lower yesterday, amid weakness in banking sector stocks. Barclays and Standard Chartered fell 2.5% and 1.5%, respectively. ARM Holdings dropped 6.1%, pressured by a decline in technology sector stocks across the US. Tesco dropped 1.8%, following news that the firm would be facing multiple lawsuits for its accounting irregularities. J Sainsbury and Wm Morrison Supermarkets declined 1.5% and 1.2%, respectively. On the upside, TUIAG advanced 2.6%, after the company announced an upbeat 1H15 trading update. Royal Dutch Shell rose 0.9%, after completing the $1.70bn sale of its oil lease in Nigeria to Aiteo Eastern E&P Co. The FTSE 100 Index declined 0.4% to close at 6,990.97. |
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US Market Review US markets ended in the red yesterday. Biogen, Alexion Pharmaceuticals and Celgene dropped 4.7%, 4.3% and 4.2%, respectively. Paychex lost 4.1%, despite reporting stronger-than-expected 3Q15 revenue. Microsoft, Intel and Apple declined 3.4%, 2.9% and 2.6%, respectively. Ford Motor retreated 2.3%, after it issued a recall on more than 220,000 vehicles. On the other hand, Kraft Foods Group soared 35.6%, after the company agreed to merge with H. J. Heinz. Noble Corporation, ENSCO and Devon Energy advanced 3.9%, 3.6% and 3.1%, respectively, in line with a rise in oil prices. The S&P 500 Index fell 1.5% to settle at 2,061.05, while the DJIA Index declined 1.6% to close at 17,718.54. The NASDAQ Index dropped 2.4% to finish at 4,876.52. |
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Asia Market Review Markets in Asia are trading mostly in the red this morning, tracking overnight losses on Wall Street. In Japan, Sharp Corporation retreated 2.4%. Media reports indicated that the struggling company planned to reduce management salaries and wages for other workers. Toyota Motor dropped 1.0%, on reports that the company would release more hybrid vehicles in Japan. In Hong Kong, Aluminum Corporation of China added 0.3%, despite the company swinging to a loss in FY14. In South Korea, market are trading lower, after data showed that consumer sentiment in South Korea reached a three-month low in March. Samsung Electronics fell 2.6%. The Nikkei 225 Index is trading 1.3% lower at 19,495.75, while the Kospi Index is trading 0.6% in negative territory at 2,029.69. The Hang Seng Index is trading 0.1% higher at 24,561.82. |
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Commodities At 06:00 SAST today, Brent crude oil rose 2.5% to trade at $55.74/bl. Yesterday, Brent crude oil rose 2.1% to settle at $54.36/bl, on the back of a weaker US dollar. Meanwhile, reports indicated that Saudi Arabia is moving heavy military equipment, including artillery to its border with Yemen, fuelling geopolitical risks. The US Energy Information Administration (EIA) , in its weekly report, stated that US crude oil inventories rose by 8.20mn bls in the last week, more than market expectations.Yesterday, the Illinois North Central No.2 Yellow corn spot prices rose 0.7% to $3.75/bushel.At 06:00 SAST today, gold prices advanced 0.3% to trade at $1,198.83/oz. Yesterday, gold gained 0.2% to close at $1,195.47/oz, as weak data on US durable goods strengthened the possibility of a delay in interest rate rise in the US.Yesterday, copper declined 0.4% to close at $6,149.50/mt. Aluminium closed 0.7% lower at $1,769.00/mt. |
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Currencies Yesterday, the South African rand weakened against the US dollar, despite data indicating that orders for durable goods in US dropped unexpectedly in February. Today, Market participants will keep a tab on the SARB’s announcement on interest rate. Additionally, investors will eye South Africa’s producer prices data for February along with reports on US weekly jobless claims and services PMI, scheduled later today.The yield on benchmark government bonds were mixed yesterday. The yield on 2015 bond advanced to 6.05% while that for the longer-dated 2026 issue fell to 7.61%.At 06:00 SAST, the US dollar is trading 0.2% higher against the South African rand at R11.8788, while the euro is trading 0.3% higher at R13.0348. At 06:00 SAST, the British pound has gained 0.2% against the South African rand to trade at R17.6769.Yesterday, the euro advanced against major currencies, after data showed that Germany’s Ifo index on business morale rose more than market expectations in March. Going forward, traders will track German GfK consumer morale and French gross domestic product (GDP) data for further direction.At 06:00 SAST, the euro advanced marginally against the US dollar to trade at $1.0973, while it has risen slightly against the British pound to trade at GBP0.7374. |
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Economic Updates In February, BBA mortgage approvals in the UK recorded a rise to 37.31k, compared with a revised level of 36.52k in the previous month. Market expectations were for BBA mortgage approvals to climb to 36.65k.The UBS consumption indicator in Switzerland registered a rise to 1.19 in February. The UBS consumption indicator had recorded a revised reading of 1.11 in the prior month.The producer price index (PPI) in Spain registered a rise of 0.2% in February on a monthly basis. The PPI had recorded a drop of 0.5% in the prior month.In March, the industrial business climate index recorded a rise to 96.00 in France, compared with a reading of 94.00 in the previous month. Markets were anticipating the industrial business climate index to rise to a level of 99.00.The Ifo business expectations index in Germany advanced to 103.90 in March, compared with a level of 102.50 in the prior month. Markets were anticipating the Ifo business expectations index to advance to a level of 103.00.The Ifo business climate index recorded a rise to 107.90 in Germany, in March, compared with a level of 106.80 in the previous month. Markets were expecting the Ifo business climate index to climb to a level of 107.30. The European Central Bank (ECB) Governing Council member, Erkki Liikanen, stated that ECB’s monetary policy actions have had a clear positive impact on the eurozone. Further, he opined that adoption of structural reforms by the member states of the eurozone would enable ECB’s policy actions to be more fruitful. On a monthly basis, durable goods orders (ex transportation) recorded an unexpected drop of 0.4% in February, in the US, compared with a revised drop of 0.7% in the previous month. The mortgage applications in the US advanced 9.5% in the week ended 20 March 2015 on a weekly basis. Mortgage applications had recorded a drop of 3.9% in the prior week. The President of the Chicago Federal Reserve, Charles Evans, raised concerns about low inflation in the US. He further opined that the central bank should keep its interest rates low until 2016 as uncertainty continues to hover over the health of the global economy. |
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Corporate Updates South AfricaPSG Konsult Limited: The financial services company, in its trading statement for FY15, indicated that it expects recurring headline EPS would be between 26.80c and 27.30c, compared with 20.60c posted in the preceding year. Its headline EPS is expected to be between 33.0% and 36.0% higher than reported in the previous year of 20.00c; and attributable EPS to be between 26.70c and 27.30c, compared with 20.40c reported in the last year.Howden Africa Holdings Limited: The industrial equipment supplying company, in its FY14 results, stated that revenue dropped 5.6% from the previous year to R1.59bn. Its headline EPS stood at R4.10, compared with R4.75 recorded in the last year. The company revealed that it would not declare dividend, in the light of the potential BEE ownership transaction.Times Media Group: The media company, in its trading statement for six months ended 31 December 2014, indicated that it expects to announce EPS of 82.00c, a decrease 78.1% from the corresponding period of last year. It anticipates headline EPS of 67.00c, which is 65.8% lower from the same period a year ago.Nampak Limited: The manufacturing company revealed that it would not proceed with the sale of the Sacks division as previously announced and would instead continue to remain part of its operations. Last year, the company announced that it would be disposing of its Corrugated, Sacks and Tissue divisions in South Africa to Ethos Private Equity. As a result, the purchase consideration for the transaction would reduce from R1.58bn to R1.53bn. Meanwhile, the company stated that it has subsequently agreed to sell its Recycling business to Ethos for a purchase consideration of R76.30mn. Additionally; the company indicated that it would be selling its flexible division to Amcor Group for a purchase consideration of between R250.00mn and R300.00mn, dependent on the profitability of the business during the twelve months ending June 2016.Illovo Sugar Limited: The sugar producing company announced the appointment of Mr. Trevor Munday as Chairman in place of Mr Don MacLeod, with effect from the close of the FY15 AGM. Investec Australia Property Fund: The company announced that it has entered into a contract for sale with the Trust company to acquire the property located at 21 – 23 Solent Circuit, Baulkham Hills NSW 2153 for AUD38.92mn. UK and US Paychex Inc.: The human resources related services company, in its 3Q15 results, indicated that total revenue increased 8.3% from the same period of preceding year to $704.30mn. Its diluted EPS stood at $0.46, compared with $0.44 recorded in the corresponding period of previous year. For FY15, the company expects its net income to grow in the range of 6.0% to 8.0% from FY14. Red Hat: The software company, in its FY15 results, stated that its total subscription, training and services revenue climbed 16.6% from the previous year to $1.79bn. Its diluted net EPS was $0.95, compared with $0.93 posted in the prior year. Furthermore, the company announced that it has authorised the repurchase of up to $500.00mn of its common stock from time to time on the open market or in privately negotiated transactions. The company also stated that it was honored by Google for Work as the 2014 Global Partner of the Year: Technology. PVH Corporation: The clothing company, in its FY15 results, revealed that total revenue was up 0.7% to $8.24bn, compare with the prior year. Its diluted net EPS rose to $5.27 from $1.74 recorded in the previous year. The company projected its EPS for FY16 to be in the range of $6.75 to $6.90 on a non-GAAP basis, which reflects the expected $1.30 negative impact related to foreign currency exchange rates and pressures on the company’s Russia businesses. Verint Systems: The software company, in its FY15 results, indicated that total revenue increased to $1.13bn from $0.91bn recorded in the last year. However, its diluted net EPS decreased to $0.52 from $0.99 posted in the preceding year. For FY16, the company expects revenue in the range of $1.20bn to $1.25bn. Apollo Education Group: The company, in its 2Q15 results, stated that net revenue dropped 14.0% from the corresponding period of previous year to $578.57mn. It incurred a net diluted loss from its continuing operations of $0.31/share, compared with EPS of $0.15 posted in the same period a year ago. For FY15, the company expects net revenue of $2.63bn to $2.68bn. Ultragenyx Pharmaceutical: The biopharmaceutical company, in its FY14 results, revealed that its research and development expenses increased to $45.97mn from $27.83mn recorded in the previous year. Its basic and diluted net loss totaled to $2.25/share, compared with a loss of $14.87/share posted in the prior year. The company stated that it is now in or entering Phase 3 for two of its six clinical programmes, and it expects to see Phase 2 data for all four of the others in FY15 or early FY16. Five Below: The discount store company, in its FY15 results, indicated that net sales increased 27.0% from the last year to $680.22mn. Its diluted net EPS stood at $0.88, compared with $0.59 recorded in the previous year. For 1Q16, net sales are expected to be in the range of $150.00mn to $152.00mn, based on opening 18 new stores and assuming a 1.0% to 2.0% increase in comparable store sales. Kraft Foods Group: The company alongwith H.J. Heinz announced that they have entered into a definitive merger agreement to create the Kraft Heinz Company, forming the third largest food and beverage company in North America with an unparalleled portfolio of iconic brands, wherein Kraft shareholders will own 49.0% stake in the combined company, and current Heinz shareholders will own 51.0% on a fully diluted basis. TUI AG: The company, in its pre-close trading update ahead of its 1H15 results, indicated that it is on track to deliver results ahead of last year on a like-for-like basis. It stated that the winter closing was as expected, with higher average selling prices in most source markets up 1.0% overall and in summer, bookings were up 1.0% and average selling prices were up 1.0%. The company indicated that is confident of delivering full year underlying operating profit growth of 10.0% to 15.0%. United Utilities Group: The company, in its trading update for FY15, stated that the current trading is in line with its expectations. It indicated that revenue is expected to be slightly higher than last year, reflecting the regulated price allowance for FY15 partly offset by the impact of the previously announced one-off special customer discount of around GBP20.00mn. Balfour Beatty: The infrastructure company, in its FY14 results, indicated that total revenue dropped 0.7% from the previous year to GBP8.79bn. It reported a diluted loss of 8.60p/share, compared with a loss of 5.10p/share posted in the prior year. The company stated that it would not recommend a final dividend after reporting losses during the year. Nostrum Oil & Gas: The oil and gas company, in its FY14 results, revealed that total revenue dropped 12.6% from the previous year to $781.88mn. It stated that net income was $146.40mn, compared with $220.00mn reported in the prior year. It recommended a final dividend of $0.27/ordinary share, payable on 26 June 2015 to shareholders. Card Factory: The retail company, in its preliminary FY15 results, stated that revenue increased to GBP353.30mn from GBP326.90mn recorded in the previous year. Its basic and diluted EPS was 10.60p, compared with 7.50p posted in the last year. The company stated that it is confident in the group’s future prospects, and in its ability to continue to grow sales profitably and to increase market share consistently over the medium term. Stagecoach Group: The transport company announced that its subsidiary, Stagecoach South Western Trains Limited, has agreed a Deed of Amendment (DoA) to the South West Trains franchise with the Department for Transport. The company stated that it does not currently expect the DoA to have a material impact on profit for the remaining period of the South West Trains franchise. IP Group: The intellectual property business company indicated that Diurnal Limited, in which it holds a 51.7% undiluted beneficial interest, has been granted Orphan Drug designation by the US Food and Drug Administration for its lead product Chronocort. Financial Times Website launched to compare current accounts: People will be able to compare current accounts from the big six high street banks for the first time using a government-backed service launched on Thursday by the Gocompare.com website. Drugs companies unite to mine genetic data: Several of the world’s biggest pharmaceuticals companies have formed a partnership with Genomics England in the first step towards using genetic data from NHS patients in medical research. Jon Moulton-backed biotech company to list on Aim: A Liverpool-based biotech company, backed by venture capitalist Jon Moulton, will float in London on Friday in a sign of life for Britain’s life science industry beyond the southeast. Premier League clubs score first collective profit since 1999: Premier League football clubs made their first collective profit in 15 years last season. Clubs kept a lid on wages to avoid falling foul of rules designed to curb the spending of wealthy owners. MPs question Sports Direct over collapse of USC chain: Mike Ashley’s Sports Direct empire has been branded “a backstreet outfit” that withheld payments to suppliers and landlords by MPs investigating the collapse of its USC fashion chain. Employers told to factor commission into holiday pay: Employers must take account of commission payments when they calculate holiday pay for their staff, according to a legal ruling that will push up some companies’ wage bills. BT returns to mobile market with handset offer: BT has returned to the British consumer mobile market with low-cost offers for existing broadband customers in its first move towards offering bundles of telecoms services. Tata Motors confirms $1.00bn rights issue: Tata Motors has set out plans to raise as much as Rs75.00bn ($1.20bn) through a rights issue, as it seeks to cut debt and jump-start its loss making Indian car business. FCA proposes ban on selling of opt-out insurance add-ons: Insurance products that customers default into buying will be banned under plans put forward by the UK’s financial watchdog. Monitise rules out sale as founder Alastair Lukies moves on: Once considered a high-flyer of the UK technology scene, the struggling mobile money group Monitise has decided to go it alone – in more ways than one. AA to raise GBP935.00mn to cut annual interest costs: The AA has unveiled plans to raise almost GBP1.00bn in equity and debt as part of refinancing measures that will allow the roadside assistance group to cut its annual interest costs. Hungary bows to EU pressure on nuclear fuel deal: Hungary has agreed to EU demands that it diversify its nuclear fuel supply away from Russia, removing one of the main obstacles to the Kremlin-backed expansion of a landmark atomic power plant. Kraft deal offers glimpse into Berkshire’s future: Warren Buffett turned Berkshire Hathaway into the second-largest company in the US by buying businesses and letting their existing management get on with running them. The times are a-changing. Investment in financial technology groups triples to $12.00bn in year: Investment in financial technology companies trebled last year, providing a hint of the scale of digital disruption banks face, according to research from Accenture. RBS raises value of Citizens sale to $3.70bn: Royal Bank of Scotland on Wednesday increased the value of shares it is selling in Citizens Financial to as much as $3.70bn after receiving stronger than expected demand from investors to own a stake in its recently listed US subsidiary. Facebook opens Messenger to developers: Facebook is betting that its growing messaging app will be its next big revenue generator, mimicking the model of Asian internet companies such as Tencent’s WeChat by integrating other apps. O2 deal catapults Three from smallest to biggest UK mobile group: Hutchison Whampoa’s GBP10.00bn purchase of UK mobile group O2 from Spain’s TelefĂłnica will catapult Three from being the UK’s smallest mobile group to the biggest, with an enterprise value of more than GBP15.00bn. Etihad backs IAG EUR1.35bn Aer Lingus bid: Etihad Airways, the third-largest shareholder in Aer Lingus, has said it would sell its stake if Dublin backs International Airlines Group’s EUR1.35bn offer for Ireland’s flagship carrier. Money supermarket: Dived 3.4% to 276.30p after founder Simon Nixon abandoned plans to sell part of his stake for around GBP100.00mn. Balfour Beatty: Edged 5.5% higher to 244.00p as bearish investors cut their trades. |
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LexDarden Restaurants: back for seconds: Darden Restaurants, the scene of perhaps the ugliest shareholder revolt of FY14, had its entire board replaced. The instigator was the hedge fund Starboard Value. Starboard proposed the sale of the property underneath the Olive Garden restaurants – the standard bit of financial engineering prescribed to retail chains of all sorts. Darden’s new management is still working through how to pursue that play. In the meantime, surprisingly, Olive Garden has got better at selling Italian food. Restaurant-level profit margin in the quarter rose more than 2.0% points to 23.0% and, combined with the revenue boost, earnings per share surged 40.0% from a year ago. Another reason profits went up: marketing outlay dropped 1 percentage point. Restaurant traffic dipped, so Darden is now trying to balance cost cuts and investments in the business. Sales growth, while positive, still lags behind the industry average, Telsey Advisory Group notes. The improving business may be paired with upcoming property transactions. Darden has sold 16 properties and the buyers accepted a yield of just 5.0% on their purchases. And Darden is now looking to sell the rest of Olive Garden’s property. The corporate headquarters have already been put on the block.Heinz/Kraft: debt of gratitude: The tie-up between food monstrosities Kraft Foods and Heinz, engineered by Warren Buffett and 3G, a private equity firm, turns the template on its head. Heinz’s backers, 3G and Mr Buffett, will own just over half the new company. Shareholders in Kraft will own the rest and get a one-time cash dividend of $16.50. On reasonable assumptions about the new company’s valuation, Kraft shareholders are getting $80.00 in value (which is about where the stock traded on Wednesday), implying a 30.0% premium to the pre-deal share price. It turns out that 3G may be so good at operational engineering that less financial engineering is required. In two years, Heinz’s profit margin (before interest, taxes, depreciation and amortisation) has widened by a stunning 8.0% points, to 26.0%. Kraft’s margin is 20.0%, and 3G says there is an opportunity realise at least $1.50bn in savings. This is striking too, given that Kraft’s total ebitda last year was just $3.70bn. This will collectively be worth nearly $1.00bn in saved interest payments. Heinz is effectively piggybacking on Kraft’s credit rating to amplify the effects of the cuts. There is more than one kind of private equity deal because there is more than one kind of leverage.Hungary: forint affairs: “Trust Fidesz” proclaimed Hungary’s ruling centre-right party in the elections last October. After four years of expensive, erratic tax policy, investors will struggle to do so. After its 2010 re-election, Viktor Orban’s government put special levies on banks, telecoms and other companies that cost around 1.0% of GDP a year. Forced conversion of euro and Swiss franc mortgages into forint cost the banks another EUR3.00bn. Bank levies made zombies of the Hungarian units of foreign banks, which the government then bought (it has pledged to sell them as part of the EBRD deal). Relations with Europe have been bumpy; those with Russia have warmed. Given all this, Hungary’s economy is surprisingly healthy. GDP grew by 3.6% last year, the second highest level in Europe. The deficit is below 3.0% and there is a current account surplus. Lower utility and mortgage costs have helped consumer confidence and households are spending. A central bank growth scheme has encouraged domestic banks to lend to small firms. Magyar Telekom and OTP bank offer domestic exposure. Margins at Magyar Telekom, a Deutsche Telekom subsidiary, are improving slowly, but revenues are down and it sells at 16 times forward earnings. OTP, Hungary’s largest bank, mixes domestic exposure with a bit of Bulgaria, Russia and Ukraine. Its return on equity is a sluggish 8.5% and it trades at 0.8 times book value. Even if investors trust Fidesz, an obvious way to express it is hard to find. |